Towering Challenges in Toronto's Real Estate: Insights and Innovations

Hello, and welcome to the Creative Viz podcast, where we delve into topics surrounding architecture, development, and visual design. Today, I have the pleasure of speaking with Aun Qazilbash with Capital Developments, and he serves as a manager for pre-construction and design in Toronto, Ontario. It's great to see you.

Thank you, Scott. Thanks for having me.

You bet. Today, we've got a lot of ground to cover. Toronto's a huge market. There's a very active, busy market there, particularly for residential. So, lots of topics. Want to touch on, I think, top of mind here is, to hear about projects that you have going on. You mentioned that you are very active in the center city, as opposed to the wider GTA, greater Toronto area. I'd love to hear your approach and, like I said, just touch on a couple of the projects that you have going on right now.

Yeah, absolutely. Some of the projects we're working on right now is 8 Elm, for example, in downtown Toronto. That's very close to Dundas Square Eaton Center. And it's a 69-story building with a three-level underground, very unique tower. It's one of the first buildings here at Capital and one of the first in Toronto that will have an automated parking system, actually. So that's a very innovative technology that's being implemented in that project. And being so close to the downtown core, many challenges that we've encountered. So I'll give you an example. One of the main parts of the approval for that project were there's a heritage component to it. So we had to do a heritage retention, panelization, and restoration, which is quite a difficult undertaking and from an engineering point of view, challenging. So that's an example of one logistic challenge we encountered. The other solution we implemented on that project is we utilize a temporary slab. It's essentially part of the permanent structures like a slab installed at an early sequence in the project, but essentially the purpose being it helps with logistics and lay down and providing some area for actual construction activity, whether it's for equipment or staging to take place. So those are a few of the challenges of building. This is going to be in excess of 200 meters when it's all said and done. Building in Toronto downtown and being very conscious and aware of the neighborhood, the surrounding traffic, obviously, and everything that's in and around.

That's awesome. Toronto is especially noteworthy for the height of these towers. There's so many very tall buildings, underway all through the city. Do you feel like there's enough expertise locally to build these very tall buildings do you run into a problem of the builders being stretched a little too thin with simultaneous projects?

I think there is a mixed category of builders, obviously. One of the key areas for success on a tall building is your pre-construction and planning when you are designing your buildings, whether you take it from schematic to design development to actual tendering and construction set of documents, you want to make sure that how you're designing is always overlaid with what are the cost implications of certain things? What are the logistical implications? Everything's going to be kind of within the realm of what you're trying to finally deliver, right? Financially and from a scheduling point of view. So a lot of the successes depend on making sure that you are able to attain and achieve schedules that you've forecasted and built into your proforma. The other is obviously the budgets and that's where a lot of the failures lie. A competent developer, if you look at Capital Developments a zero building last year is a 32-story tower that got completed last year, 350 units during COVID and it hit schedule and budget. So it's just an example of the pre-planning that went into that project really carried out into the execution. And, at the tail end, you come out successful. Whereas, if you look in the headlines in Toronto recently, there are a few projects that are out there that are not doing so great in terms of being able to achieve those key

Right. It's a difficult market for sure. I can imagine with all of the scheduling impacts. There just has to be so many added costs for developing and really tight spaces within the city. Do these tall towers command the premium for the cost that goes into them versus some of the outer areas where logistically may be easier to build?

Absolutely. I think there are premiums. For example, 8 Elm. One of the towers we're doing, it's going to have an RCS system. So it's basically an enclosure around the tower that climbs after you've crossed the podium level of the building. And that provides a safety enclosure that you could build and perform that work in a safe manner. So that's a premium that is on a project. One of the other solutions on that project is an interior hoist. So a lot of times the hoist that will be utilized for material and labor manpower handling is on the outside. When you implement on the inside, it kind of frees up a lot of the outside. So it gives you a bit more flexibility on maneuverability inside your project. But then, it comes at a premium. There are definitely those additional premiums. But when you weigh it against the schedule benefits sometimes, or the overall objectives of the project, you do the analysis, it works out in your favor a lot of times. Otherwise, you wouldn't do it, right?

No, absolutely. For sure. I'm thinking there must be certain thresholds where not only do you think about different kinds of structures that go into a tower, but also different types of units or different amenities or the tower itself might have a different program once you exceed, say, 40 levels or 50 levels. Are there thresholds that you see currently with the different projects, like different sweet spots, if you will for different types of towers?

Towers are definitely getting a lot taller in Toronto, and it is more challenging. And, the instinct might be that more density, higher towers are more profitable and easier to build and less on construction costs. But the reality is there is a fine line. Anything between, I think, 30 stories to 50 stories is kind of like the ideal height, I would say, for towers. 8 Elm, which is 69, for example, there was an analysis that was done if it needed a mass damper at the roof. So this is a big structural member element that's on the roof and it helps to stabilize the building because you're exposed to a lot of wind forces at the top. So we were able to avoid that just by being able to be within the height tolerances, but those are some of the challenges you will encounter as you climb taller. When you work at those heights, productivity, everything from getting material up there, everything from considerations on your building, there's a lot more that needs to be taken into account. I think it's progressively a bit more difficult when you exceed the 50-55 story. You start getting into unique challenges above that height.

Yeah, that's interesting. And I imagine it's, like we were saying a second ago, those units up there, they must come in an extraordinary premium to make it all pencil.

There's definitely a premium. Anytime you're at the top of the tower and you have a much nicer view. And a lot of time on these taller towers, you'll have a nice amenity up there as well. You'll get the terraces and the balconies sometimes as well. So there is a premium associated with it. Just purely on that principle, but there is a fine line between how much premium you could actually request on a product like that versus if there's going to be a market demand. Right? So there's a fine line. You've got to work within it for sure.

And with all the density that's come to Toronto, have the neighborhoods embraced the new developments, these really tall buildings perhaps in areas that didn't have them in the past, and how do you navigate that landscape of making sure it's a good fit for the neighborhood?

There's always reluctancy a lot of times in neighborhoods that you add density. NIMBYism is a quite active force that works against you many times. So nobody likes density in their neighborhood or in their areas. It's a sensitive topic to navigate around. I think you just have to be really conscious about being there and doing the right thing for the community. You need to know that, yes, you're providing density, which is housing for people. That's a value add. I think in general a net positive to society, but also you want to give back to the community. So whether it's in the form of a parkland dedication, whether it's an additional amenity that you're offering, or an initiative that you're carrying out for the community, or as you're navigating through the entitlement process, I'm mostly on the construction side. So I see it more at arm's length, a lot of times it's really just listening to what the community concerns are. And then going back to the drawing table and figuring out, these are the key things that the community really cares about has voiced their concerns. So what can we do to accommodate that? It's really keeping your ears open being receptive to what the community has to say taking that into account, not just spearheading only your vision through, right? It's a collective process for sure.

And I imagine there are ways to do this without adding cost to the project.

Yeah, that is always a challenge there are ways to do it. But you go to the drawing board, you assess everything, you look at the cost and then you come back and you have these discussions, really valuable discussions. A lot of times you do end up being out of pocket as a developer, but you know that it is overall the better good for the community, and it's addressing a concern that has been really voiced in community meetings or by the neighborhood or the counselor in general. And you kind of work through those things.

I understand Capital is very focused on the downtown core of Toronto, the spine essentially along Yonge Street. Is that a conscious decision or have you explored other projects, other opportunities within the greater Toronto area? Is that something you're looking at in the near future?

I think it's a constant discussion inside our office. I'm close to a lot of the acquisition people, and there's definitely a consideration to look at projects outside of the city of Toronto. A lot of the projects have been on Yonge Street between, what is Eden Center and say North York, which is Yonge and Finch. This is literally the artery that runs north-south in the city. There has been an approach to look at projects, but nothing has penciled out till now. You want to tread really carefully when you go into another market. There's other challenges, other municipality challenges, that will come in play as well, but there are some pockets that are emerging. So if you look at the Vaughan Metropolitan Center, for example, that's an area outside of Toronto North. That's like the northmost subway stop that will go from downtown and there's a whole pocket of condominiums. That has emerged. Pickering Town Center, there's another just east of the city of Toronto has a development that was announced this year. That's going to see about 10 buildings coming in that area, which is very high density. I think it's about 6000 units. So there's a lot of projects that are coming in the GTA. I think the approach of Capital for now has been open to the idea, but it's got to be the right opportunity, it's got to be something that really pencils out and makes sense. And then you go from there.

Yeah, it's interesting. And then something else I wanted to touch on is mixed-use development as a new model for certainly urban sites creating diversity and program keeping the activation that we have in our center cores. Is Capital looking at mixed-use projects? Do they have any underway? Is that something that you guys are exploring as well in new development projects?

Three years ago when I joined Capital, the biggest one that comes to mind is Art Shop. Art Shop is a mixed-use development. It's near the Yonge and Eglinton nodes, so a little bit north of downtown. But it's got about 25, 000 square feet of retail. It's got an anchor tenant in Farm Boy, so anytime you have a condo with a grocery store anchor tenant, I think there's an immense value. If you're a resident, it's very convenient for you to go down and even for the neighborhood, right? To be able to have that facility available to you. That's got a restaurant, Retta, an Italian restaurant, which is very nice. It's got Staples. So there's some key retail that are in that building. So that's an example in our other projects. There's a retail component to it. We haven't explored a major project, for example, like an 18-story hotel or something of that sort. Again, open to the idea. I think here at the company, but you want to tread carefully because you want to make sure that it all works out at the end.

Of course, it's difficult. The first one's always the hardest.

Absolutely. So then, let's take a look. What do you see on the ground? Are there any trends in Toronto looking ahead? When I see the market, the towers just get bigger and bigger and taller and taller. Do you think that will continue to be the case? There's been discussion of the housing market kind of taking a breath here, kind of catching up to demand. Are you seeing any of those types of things from your perspective?

Yeah, I think the biggest challenge has been, the Bank of Canada has raised the interest rate by 450 basis points, right? So what it was in 2022 at half a percent, it's now 5%. So financially, a lot of developers have to look at their proformas and the predictions and the forecast and make sure it makes sense financially, right? So I think that's been a big challenge. But on top of that is an overlay, which is you have a housing shortage in Toronto. Immigration is continuing to grow. The population is continuing to grow in Toronto. Canada, you have three, four major cities. You have Vancouver, you have Montreal, you have Toronto, and then maybe you can include Calgary or Ottawa in that category as well. So with the population increase, density absolutely and required, but it's got to make sense. One financially. So with the interest rates, that's challenging. I would say that's a big headwind that the industry is facing. And the second is the navigating through the regulations and the municipality and the approval for the entitlement and how long it sometimes takes from the time you submit your first application to the time you get an approval for your development, it's quite frustrating sometimes, right? Because, once the clock starts ticking, you have expenses, you have loans that you need to take care of. So once, that clock starts ticking, it's very challenging. So those two issues could maybe get a little bit mitigated or improved. I think there's always going to be opportunity in Toronto. Toronto is a thriving economy market city. There's a lot of dynamic nature to it. I just think those are a few challenges that are really right now in the industry.

Temporary challenges, it sounds like, but the demand is more permanent. That's the impression I get.

In the long term, for sure. I think historically, if you look at a statistic where in the last 15 years, year over year, pre-construction pricing has always gone up year over year. This was the first year it actually went down, oh really? just because of some of these challenges. So that just shows if you look at a historical chart, you'll always see a linear incline. And now that's kind of stabilized, right? But if you look at the future, I think it's going to continue to grow. There's going to be a demand in the city, but one of those things when you have such a high cost to produce right now, really have to look at it. But one of the great things that have happened recently is the government just announced on rental buildings, they're giving a tax break. So if you are pursuing a rental project, the 13 percent that you would have incurred as a tax implication on that project, you could avoid that. So now many developers are looking at the opportunity where maybe the condominium doesn't make sense, but a rental tower makes sense. It's a whole different pursuit, but that's an approach a lot of developers are looking at.

As I think historically the majority of new units delivered are for sale, condominiums. So do you see a change in rental properties becoming more available?

That's definitely the idea with this new initiative that has been introduced into the market. You want more rental housing available, and this will incentivize a lot of developers to do it, right? So if you could get a 13 percent discount on your costs, this tax break definitely looks a lot more lucrative. Right? So I think the answer is should improve. The amount of shovel-ready projects that you'll see in the future and potentially the amount of projects that come into the market that are going to be rental it's still early days. So, with any initiative that is implemented, it takes a little bit of time to really see what the overall impact is going to be. I think the next 12 months to 18 months would bring that to light. I think a lot of developers are seriously looking at rental as a pursuit.

That's really encouraging. I know affordability has been such a challenge. So hopefully, that will take some of the sting out of entering the market, being able to afford to live in the center city of Toronto.

Absolutely. And just about bridging the gap. The amount of houses that are introduced into the market right now are substantially lower than the amount of people that are coming into the city. So whenever you have that delta, you're going to automatically see, just the forces of supply and demand are going to force rents up and the cost of housing up. If you could shrink that gap between the amount of units that are being delivered by the city versus matching the quantity of people that are coming then in theory should improve the situation.

I hope so. It's been challenging here, especially in the major cities of Canada. I'm sure we could revisit Toronto. There's a lot of interesting developments certainly what I believe North America's fastest-growing city at this point, Toronto. Thank you so much, Aun, for giving us insight into construction, affordability, all of these factors that go into creating these amazing new towers in Toronto. Thank you so much for joining us. Be sure and follow us to stay on top of all new developments here at Creative Viz.

Thank you so much, Aun.

Thank you for having me, Scott.